Cyan Newsletter – 30 April 2024

09 May 2024

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After a solid start to the calendar year, both local and international markets endured a tough April as inflation indicators turned northward and long-term rates increased.

In Australia, domestic 10yr bonds spiked 50bp to 4.5% which had a correspondingly negative impact on equity markets. The S&P/ASX All Ords Accumulation Index fell 2.7% and the S&P/ASX Small Industrials retreated 5.0%. Overseas both the NASDAQ and S&P500 dropped 5% and 4.2% respectively.

In contrast to the macro headwinds and soft markets, the Cyan C3G Fund enjoyed some significant stock rises and returned 3.3% in April.

Aust 10yr Govt Bonds (blue), 90day Bank Bills (green) 

There is increasing interest in the smaller to micro end of the market with several significant capital raisings being supported. The most significant of these was the $100m+ (upscaled from $70m) that drone defence company Droneshield (DRO) raised at a valuation of ~$600m. DRO’s present order book stands at just $27m.

We have to compare the valuation of DRO to our holding in drone and carbon fibre components manufacturer Quickstep (QHL) which presently trades at a market cap of $14m and has won new contracts in the past few months, to complement its existing $100m+ revenue base.

Additionally, the IPO market has started to show some signs of life with three recent industrial IPOs trading above issue price: The Australian Wealth Advisors Group (AWG +40%), Blinklab (BB1 +32%) and Tasmea (TEA +9%).
As evidenced by the rises in a number of our portfolio holdings, particularly those that have not recently released any positive news, this shift toward the micro-cap sector is a growing trend.

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Month in Review

Highlighting the relative importance of momentum in the micro-cap space, the strongest performer again this month was diversified music business Vinyl (VNL +44%). During the month the two major shareholders elected to convert their notes into equity. Wisetech (WTC) founder Richard White’s Realwise Holdings and Songtradr now own 34% and 20% respectively of Vinyl. In addition, VNL posted its 3Q24 result which included the newly acquired Brag Media group resulting in a 200% increase in revenues QoQ. Combined with its existing music data business (Jaxsta), social networking company (Vampr) and retail site ( the company expects to generate almost $10m in revenues in CY24.

We have discussed in the past (Livewire: The microcap sitting on a cash pile) our opinion of the valuation gap of camera producer Birddog (BDT +20%) with its cash at bank of over $20m and a corresponding market cap of $13m.

The rare cases where companies trade below cash backing, is typically when they are experiencing significant cash-outflows such as a pre-revenue biotech. With respect to BDT, it reported 3Q24 sales of $5m and cash outflow of just $200k conserving most of its cash. Despite the substantial rise in the share price over the month, the stock continues to trade below cash backing thus we still consider it an extremely attractive investment opportunity.

The other strong performer in the month was Readcloud (RCL +28%) which produced an outstanding quarterly result with customer revenues of $5.2m and positive operating cashflow of $2m. RCL provides digital eLearning solutions to Secondary Schools and the Vocational Education and training (VET) industries and has shown meaningful signs of a turnaround since installing new management last year.

Other stocks that pushed higher in April included Alcidion (ALC +6%), Touch Ventures (TVL +7%) and Acusensus (ACE +7%).

On the downside we experienced some pullbacks in Playside (PLY -7%), Zoom2U (Z2U -4%) and Beamtree (BMT -16%) which have pleasingly reversed direction to date this month.


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Recent inflation and wages data has tempered the outlook for a rate-cut, indeed most recent RBA commentary has indicated there may be a renewed tilt towards further official cash rate rises. Cash rates in Australia have been held at 4.35% since November 2023.

This has had a corresponding impact on the stock market although some recent strength this month might imply that this has been factored in.

In respect to the Cyan C3G Fund the environment is looking increasingly promising with stock flows, corporate activity and general market activity improving markedly from prior periods.

Almost across the board we’re seeing upticks in volumes and prices which, in some cases, are being prompted by material improvement in underlying company performance.  However, in others there appears to be a sense that investors are reacting to a fear of missing out in picking the bottom of this highly depressed micro-cap market.

We’ve discussed at length the irrationality of companies trading below their cash backing and yet, even with the recent market strength, this opportunity or arbitrage remains.

We remain highly motivated by the opportunities in the present market. It’s been a long and painful road to get here but we believe there will be significant and potentially swift rewards for investors over the next few months as momentum builds and market prices close the large valuation gap to underlying fundamentals.
Dean Fergie and Graeme Carson


Cyan Investment Management

AFSL No. 453209

An investment in the Cyan C3G Fund can be made by clicking here